Daily Archives: May 6, 2019

Dividends

This 9.2% Dividend Is On Sale (11% Off!)

I’ve uncovered two high-yield closed-end funds (CEFs) that are perfect for this “earnings down, stocks up” market.

I’m going to show you both of these bargain-priced, cash-spinning plays—one of which yields an incredible 9.2%, five times more than the typical S&P 500 stock—shortly.

First, we need to talk about where stocks stand now. Because you’re probably wondering how the market can keep ticking up when first-quarter earnings are actually down from a year ago.

You’re right to be concerned, because it makes zero sense—on the surface. But dig deeper and you’ll see that this is a good news story, and a perfect opportunity for contrarians like us to grab big gains (and dividends).

Let’s get into it.

When a Loss Is a Gain

With earnings season half over, profits have fallen 2.3% year over year. That sounds bad, but it’s actually better than the 4% drop analysts predicted before the season started.

The reason? Surprises. A total of 77% of companies are reporting earnings above estimates, thanks to better-than-expected 5.1% sales growth. Sales are the lifeblood of profits, so this makes it easier to beat profit expectations.

Those earnings beats are also evenly distributed across sectors, with over half of companies in all sectors showing better-than-expected results:

Beating Expectations Across the Board

Again, the common theme is that sales are growing across sectors: people are buying more stuff, and that’s helping earnings across the market.

But Why Are Earnings Down?

That brings us to the question of why earnings are down at all. If things are so good, why aren’t profits up? There are two answers: the first is that year-ago profits were so strong that they’re tough to build on.

A Big Hill to Climb

In the first quarter of 2018, earnings jumped 24.7% and stayed at that level for the next two quarters. As you can see above, such growth is unusual—and a tough act to follow!

That’s why analysts were modest in their earnings estimates for this quarter. But now earnings are coming close to the mark set a year ago, showing that the economy is still strong, and companies are still in great shape.

The second reason for the lack of earnings growth is that the first quarter tends to be weak. The post-holiday period is no time to load up the credit card, so Q1 expectations are often modest.

In fact, any growth in the first quarter following growth a year earlier is exceptional. That makes 2018’s 24.7% profit jump unusual, since it followed 14% growth a year previous. To expect three straight years of first-quarter growth would be very optimistic indeed.

The takeaway? The economy isn’t getting overheated but isn’t cooling down, either.

Next Leg of Growth About to Kick Off

With first-quarter economic growth ticking along at 3.2%, according to the Commerce Department, it’s no surprise that companies are seeing sales jump 5.1%. That growth also positions them up to expand their operations and set themselves up for higher sales and profits in the future. And companies are doing just that: they spent more on buying, building and upgrading assets in 2018, and that trend is continuing.

But the market hasn’t priced this growth in—not even close. And this is where our opportunity shows up.

A Buying Opportunity in Disguise

Stocks are up less than 10% since before earnings saw three consecutive quarters of 25% growth, which is below the average return stocks deliver in the long term. That means it isn’t too late to get into the market, even if the rebound we’ve seen this year makes it feel that way.

And you’ll be able to buy in even cheaper with the two CEFs I mentioned off the top. Let’s move on to those now.

Two CEFs to Ride the Market Higher (and bag yields up to 9.2%)

Our first high-yield play is the Boulder Growth & Income Fund (BIF), which focuses on bargain-priced large caps. This fund holds much of its portfolio in Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B), along with other top-quality stocks like JPMorgan (JPM) and American Express (AXP).

So why buy BIF instead of cutting out the middleman and just buying its collection of well-known names on your own?

Simple: as I write, BIF trades at a massive 16.8% discount to net asset value (or NAV, another name for the value of the stocks the fund owns). That means you’re getting these top-quality large caps for 87 cents on the dollar! And while BIF’s 3.7% dividend yield is low for a CEF, it’s still double what the typical S&P 500 name pays.

Finally, you can juice your income stream more with the 9.2%-yielding Cohen & Steers Income Builder (INB), holder of some of the best companies in America, with Microsoft (MSFT), Visa (V), Philip Morris (PM) and Amazon (AMZN) standing out among its top holdings.

Here’s the key point to remember about INB: its NAV has returned 14.2% this year (including dividends and price gains). But investors are giving it very little credit, because the fund still trades at 10.8% below its NAV! That’s one of the widest gaps in the CEF space, and it points to more upside as that discount narrows.

NEW: The 4 CEFs You Must Buy Now (8.7% Dividends, Double-Digit Gains Ahead)

As I just showed you, stocks are still a great buy as investors (slowly) discover there’s still time to get in on this “goldilocks” economy.

And as you saw with BIF and INB, you’ll do better (and grab far higher dividends) if you make your move through a CEF. The best of these funds give you the best of all worlds: huge dividends, market outperformance and bargain prices—often all in one buy.

I know that sounds crazy: a fund that’s still cheap even after a monster gain. But it’s a familiar story with CEFs, thanks to their weird discounts to NAV.

Consider one of my four favorite CEFs now, which I’ll show you when you click right here. This fund focuses on high-yield utilities and real estate stocks, yields an impressive 7.9% and has thoroughly bested the market this year, with a 23% return:

A Market-Beating Fund

Here’s the surprising part: despite that gain, this fund is still cheap! It trades at a 13% discount to NAV, which gives us two advantages you’ll never get buying stocks individually or through an ETF. That’s why I’m forecasting 20% price upside in the next 12 months, to go with that rich 7.9% payout.

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contarian Outlook

IPOs

6 Red Hot Recent IPO Stocks You Should Be Following

ipo investing
Source: Shutterstock

By now, it’s fairly common knowledge among financial market observers that the 2019 IPO stocks will be big, headlined by a slew of tech unicorns that are finally ready to hit the public markets. Names in this group include Uber, which will likely debut at a $100 billion-plus valuation, and Airbnb, which will likely command a $30 billion-plus valuation. There’s also Palantir with a rumored $30 billion-plus valuation, Slack with a $10 billion-plus valuation, and WeWork with a potential $40 billion-plus valuation.

But, the first big player in this group to IPO in 2019 was Lyft (NYSE:LYFT), and the results were far from spectacular. Lyft popped on its first day of trading, but it has been nothing but down and out since then. As of this writing, LYFT stock actually trades more than 15% below its IPO price.

The ostensible failure of the Lyft IPO has some fearful about upcoming IPOs. But, the failure of the Lyft IPO is getting too much press, and investors shouldn’t read much into it. While the Lyft IPO did ostensibly fail, there have been a ton of other IPO stocks in late 2018 and early 2019 which have been huge successes, and which imply that future IPOs in 2019 will do just fine.

Which IPO stocks fall into this category of big winners so far on Wall Street? Let’s take a deeper look at 6 red hot IPO stocks that all investors should be watching.

Zoom (ZM)

Zoom Is A Great Company, But Post-IPO Pop Valuation Looks Full

Gain From IPO Price: 100%

At the top of this list is a freshly public tech company which Wall Street has fallen in love with in just a few days.

Zoom (NYSE:ZM) is a video conferencing company which priced its IPO at $36 per share, opened up 80% above that IPO price, and has continued to soar ever since en route to a 100%-plus gain from that $36 IPO price. Why the huge demand for Zoom stock? The hyper-growth tech company checks off every box growth investors are looking for. It’s growing revenues at 100%-plus rate, with a small revenue base in a secular growth and very large video conferencing market. Gross margins are sky high around 80%, while opex rates are surprisingly low for a small company, and Zoom is actually profitable already.

All in all, you have a hyper-growth video conferencing company that’s already profitable. That has investors salivating.

But, the valuation on ZM stock is pretty rich here and now, and the stock has come very far, very fast. As such, caution is warranted here, especially considering that the video conferencing market isn’t light on competitors.

Red Hot IPO Stocks: Pinterest (PINS)

Source: Shutterstock

Gain From IPO Price: 40%

Second up is a social media company with a lot reach and a ton of potential to monetize that wide reach.

Unlike digital ad IPO stocks before it, the Pinterest (NYSE:PINS) IPO has been a huge success thus far. After pricing the IPO at $19 per share, PINS stock has rallied in a big way ever since, and is now up 40% from that IPO price. The rationale behind the rally is simple. This is a company which has a ton of users (265 million monthly active users), and is monetizing those users at a low rate (ARPU of just over a $1 last quarter), so the runway for robust revenue growth through ARPU expansion is promising. Plus, margins are healthy, the international user base is growing rapidly and the valuation is reasonable.

All together, then, PINS stock has been a big winner because the fundamentals are healthy, the upside potential is good, and the valuation is cheap. So long as those three things remain true, PINS stock will stay in its IPO honeymoon phase.

Red Hot IPO Stocks: YETI (YETI)

Source: Yeti

Gain From IPO Price: 100%

Third we have an outdoors consumer product company that didn’t have a huge IPO pop, but has been a steady winner in its short life as public company.

Meet YETI (NYSE:YETI). YETI is an outdoors consumer products brand that specializes in coolers and drinkware. YETI went public at $18 per share in late 2018 without much fanfare. The stock actually traded down on its first day on Wall Street. But, YETI stock has doubled ever since as the company has reported back-to-back strong earnings reports which ultimately underscore that this company has healthy growth drivers, in a healthy market, with a healthy margin profile.

In other words, YETI is a healthy company. Under $20, YETI stock wasn’t priced for healthy. That’s why the stock rallied. Above $30, the IPO stock is priced for healthy. But, not entirely. As such, so long as the numbers remain good (which they should for the foreseeable future), then YETI stock should remain on an uptrend until valuation becomes an issue. That won’t happen until around $40.

IPO Stocks: Jumia (JUMIA)

Fundamentally speaking, there's not a lot to love about Overstock stock

Source: Shutterstock

Gain From IPO Price: 140%

Maybe the most interesting stock on this list is Jumia (NYSE:JMIA).

Long story short, Jumia is Africa’s e-commerce juggernaut, and that means this company is oozing with long-term growth potential. Africa is the last great frontier of the tech revolution. Internet penetration rates on every continent outside of Africa measure north of 50%, and ex Asia, they measure north of 60%. But, in Africa, the internet penetration rate is roughly 36%. That number won’t stay low forever. Over the next several years, thanks to a combination of factors such as urbanization, expansion of the middle class, and heavy technology infrastructure investments, Africa’s internet penetration rate is expected to surge higher, and that surge will spark enormous growth in Africa’s internet sectors.

One of those sectors is e-commerce. Less than 1% of all retail sales in Africa were conducted online in 2018. As internet penetration rates rise, online retail’s penetration will likewise rise, and that will create a huge growth opportunity for players in the market. The largest player in the African e-commerce market today? Jumia, which has 4 million active consumers and a gross merchandise value near $1 billion.

If Jumia can maintain its market leadership position as the African e-commerce market dramatically expands over the next decade, then JMIA stock is a multi-bagger in the making. But, there’s a lot of risks regarding execution and valuation, so this IPO stock isn’t for the faint of heart. Best way to look at Jumia? A high-risk, high-reward play on the potentially enormous African e-commerce market.

Tencent Music (TME)

Gain From IPO Price: 35%

One of the more interesting recent IPO stocks is the company which many people are calling the Spotify (NYSE:SPOT) of China.

Tencent Music (NYSE:TME) is the premiere music streaming platform in China. China is a huge market with a rapidly expanding digital economy. As such, the upside potential for Tencent Music to grow with the rapidly expanding Chinese digital economy is enormous. But, there are a few problems here. Namely, there’s a ton of competition, the company gets most of its revenue from virtual gifts, there’s only 25 million paying subs, and the valuation is huge.

Thus, TME stock is a high-risk, high-reward play on the music streaming market in China. If consumers in that market start paying up for music services, then TME stock will explode higher. If not, TME stock could be stuck in neutral for the foreseeable future.

Levi Strauss (LEVI)

Red-Hot Athleisure Puts Lid On Jeans-Maker Levi Strauss Stock Upside

Source: Shutterstock

Gain From IPO Price: 35%

Last (and maybe least) on this list is an older company which recently made its return to Wall Street.

Blue jeans giant Levi Strauss (NYSE:LEVI) returned to the public markets in late March. The IPO was a smashing success. The stock opened up more than 30% above its $17 IPO price. LEVI stock has since largely held onto those gains — but not added to them — as first quarter numbers were a mixed bag that implied positive but slowing growth going forward.

Ultimately, it’s tough to see the upside scenario in LEVI stock. The athleisure trend remains as hot as ever, and that trend continues to steal share from the jeans market. As such, Levi Strauss finds itself on the wrong side of the apparel tracks. To be sure, that doesn’t mean growth will flat-line. But, it will put a lid on growth, and a lid on growth will hurt LEVI stock, which currently trades at above what I peg as a reasonable 2019 price target for the stock.

As of this writing, Luke Lango was long LYFT, PINS, YETI, and SPOT, and may initiate a long position in JMIA within the next 72 hours. 

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Source: Investor Place